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European Outlook: Asian stock markets are mixed, with Japan and ASX moving higher as the BoJ left policy unchanged, and the Yen retreated. Hang Seng and mainland China markets remain under pressure with oil producers and banks leading the way. U.S. stock futures are up and FTSE 100 futures are little changed, as events in Ankara and Berlin add to political uncertainty in Europe. With elections in France, the Netherlands and Germany next year especially the suspected terror attack at a German Christmas market in Berlin is likely to further boost populist movements. A fresh bout of risk aversion could see Bund futures extending gains, after the March contract managed to break the downtrend yesterday and closed at 163.15, while extending gains in after hour trade. The next target is the 163.79, the high from November 28. It will likely overshadow today’s data calendar, which includes German producer price inflation at the start of the session, followed by Eurozone current account and BoP data as well as Swiss trade and the U.K. CBI distributive trade survey.

BoJ Rates & QQE Unchanged Outlook upgrade: The Bank of Japan December meeting concluded today, with the bank upgrading its outlook for the economy but leaving policy unchanged: The short-term interest rate target unchanged at -0.1%, The 10-year JGB yield target is left at around zero %, Buying of JGBs is still targeted at an annual pace of 80tln yen. The “inflation-overshooting commitment,” also first announced in September and where the BoJ is committing to expanding the money base until CPI exceeds the y/y target of 2% and stays above target, was also reaffirmed. The central bank noted that the economy “continued its moderate recovery trend,” highlighting a pick up in exports. Overall, no surprises from the BoJ. The general view now is that the central bank is in a wait-and-see stance while it monitors a long-awaited reflation expected to be driven by a weaker yen and higher oil prices. The yen has declined by 6.2% m/m versus the dollar, while Brent crude prices are up 12.2% m/m (and by 50.9% y/y). The BoJ also last week announced a ramp-up in purchases of debt maturing in 10 to 25 years as part of its yield curve control operations.

The U.S. Data Yesterday: U.S. Markit flash services PMI fell 1.2 points to 53.4 in December after dipping 0.2 points to 54.6 in November. It was 54.3 a year ago, and is the lowest since September. The employment sub-index rose to 53.4 from 52.1 previously and is the highest since March. Prices charged also increased. The composite index also declined 1.2 points to 53.7 from 54.9, and is also the lowest since September. But new orders fell to 54.4 from 55.5, while input prices also increased. These are some of the few indicators that haven’t bounced further on the Trump-effect, though the indexes were already at relative highs in October.

Yellen: She didn’t offer anything new or any fresh policy insight in her commencement speech at the University of Baltimore. She repeated that the labor market is strong, indeed the best in nearly a decade and that job creation is continuing at a steady pace, with layoffs low. She does see indications of a pick up in wages, especially for younger workers, while productivity growth remains disappointing. While economic gains are raising most living standards, she did acknowledge there challenges remain, including the fact that the recovery has been so slow.

Main Macro Events Today

German Producer Price Index (PPI) – Expected to fall to 0.1% from 0.7% last time (MoM) whilst YoY figure expected to improve to -0.2% from -0.4% in October.

NZD GDT – Twice monthly Global Diary Trade auction announce later today along with New Zealand trdae balance and the monthly Visitor arrivals. The GDT improve last time to 3.5%, expectations are for a similar demand this time, NZ trade balance is expected to improve to -500million NZD from – 846milliom NZD as export prices have improved. Visitor arrivals expected to increase to 2.5% from 2.2% last month. The NZD has been under pressure over the last few trading sessions.

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Please note that times displayed based on local time zone and are from time of writing this report.

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Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

European Outlook: Asian stock markets moved mostly higher overnight after gains on Wall Street and in quiet trade. Japan was a notable exception and the Nikkei closing with a -0.26% loss as the Yen bounced back and strengthened across the board. The DAX tested the highs for the year today and U.S. indices also saw record levels, despite attacks in Ankara and Germany adding to global risks. Stock futures are looking a bit more cautious this morning, with U.S. futures narrowly mixed and the FTSE 100 future in negative territory. Oil prices are higher on the day and the front end WTI future is trading at USD 53.56 per barrel and Gold trades at USD 1135 per troy ounce. Markets are settling into the holiday period and lower trading volumes could exaggerate moves but core yields moved higher again yesterday as stocks remained underpinned and if stock markets get more cautious could see bond futures recovering some losses. The European data calendar has U.K. public finance data and preliminary Eurozone consumer confidence data.

US VIX: U.S. VIX equity volatility sank 1% to the 11.60 area compared to its very tight 11.50-11.74 session range. The VIX has yet to take out its lows of the year of 11.02 set on August 9, 2016, after a couple of near misses in December. Perhaps a break through/close 20k in the Dow and 2.3k in the S&P 500 will be the awaited trigger, but stocks are veering away from fresh highs again now and the VIX is rebounding toward unchanged. A break below 11.02 would put sights on life lows of 8.20 market on July 4, 1994. Look like a cat and mouse game between funds and algorithms to ride the momentum trade into year-end.

Fedspeak: SF Fed’s Williams said risks are shifting away from weakness, in a New York Times interview. Though Williams has been a long-standing dove, he has been increasingly mindful of the improved labor market, the general rise in growth, as well as the pick-up in inflation, which has shifted his stance slightly toward the center. Indeed, he admitted that while there are “a lot of uncertainty over what policies are going to be enacted” by the Trump administration, his views on “risks to the outlook have shifted a little.” Previously his stance had been “balanced and if anything a little bit to the soft side.” The potential for fiscal stimulus and other changes should shift risks to the outlook “a little bit to the right…but it’s not a big effect.” The decision to hike rates last week “stands on its own” and was “wholly” based on data. His underlying view is broadly consistent with the central tendency of the Committee, looking for moderate growth and inflation moving toward 2%. Of interest, he noted there’s a negative feedback loop when all major banks are at the zero bound.

The 2017 Oil-Led U.S. Factory Rebound is Already Underway: The U.S. factory sector is poised for a recovery into 2017 that is already taking shape, with an election lift alongside an emerging reversal of the massive GDP inventory hit that accompanied the 20-month downswing in oil prices through last February. The mining sector is lifting industrial production beyond a temporary weather-led plunge in utility output, producer sentiment is rising with spikes in planned capital spending, stock prices and consumer confidence are soaring, and inventory to sales (I/S) ratios are falling as prices and demand rebound.

Main Macro Events Today

U.S. Existing Home Sales – November existing home sales data is out today and should reveal a 0.4% increase to a 5.620 mln (median 5.540 mln) pace from 5.600 mln in October and 5.490 mln in September. NAHB sentiment in November was steady from October at 63 before bouncing to 70 in December.

NZD GDP – Year on Year GDP in New Zealand is expected to tick up to 3.7% form 3.6% last time with Quarter 3, Quarter on Quarter growth unchanged at 0.9%. The current account GDP ratio is also expected to increase but only marginally to -3.0% from -2.9%.

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Please note that times displayed based on local time zone and are from time of writing this report.

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Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

European Outlook: Asian stock markets headed mostly south overnight, following on from losses in Wall Street where the Dow is struggling to conquer the much watched 20000 mark. Japan failed to benefit from a weaker Yen and developers remained under pressure in Hong Kong and while the ASX managed to extend the year end rally to new highs, U.S. and FTSE 100 futures are also down. Oil prices are little changed, after the front end WTI future dropped below USD 53 yesterday and GOLD declined to 1130 gain overnight. While DAX and FTSE 100 remain in lofty heights, investors seem hesitant to push indices further up as markets start to settle into holiday mode and trading volumes start to thin. Yields meanwhile fell back again yesterday and while the Bund future underperformed its U.K. counterpart, it seems to have successfully broken the downtrend that was in place since late September, with the next target the area around 163.79, the high from November 28. Released overnight, U.K. Dec retail sales moved higher to -7 from -8 in Nov.

The US has a raft of data later (see below for highlights) including 3Q GDP (final revision) Durable Goods, both these key data releases at 13:30 GMT. Also today there is Spending, Income and Consumption data as well as Initial Jobless claims for the week. Canada also releases CPI and Retail Sales.

German Import Price Inflation: Jumped to 0.3% y/y from -0.6% y/y in the previous month, much higher than expected and driven mainly by a sharp turnaround in energy and basic goods prices as well as a renewed rise in prices for agriculture, forestry and fishing. Energy price inflation jumped to 0.9% y/y from -2.2% y/y in the previous month and basic goods prices were also up 0.9% y/y, after still falling -0.8% y/y in November. As predicted inflation rates are rebounding quickly as negative base effects from energy prices are falling out of the equation and with the weakening of the EUR against the dollar adding to upward pressures. Deflation is not longer an issue and in Germany the risk of overshooting headline inflation is rising as the labour market remains very tight.

Fed policy Outlook: The dot-plot suggests 3 rate hikes next year. And that’s a good first approximation with most in the markets projecting that trajectory too. But, the risk might be to fewer, especially as the Fed only hiked once this year, versus the 4 in the dot-plot. Fed policy action is unlikely to begin as soon and probably not until late Q2 at the earliest. Our forecasts show growth slowing to the mid 1.0% region next quarter, and it’s unlikely any significant Trump effect will be seen until the second half of 2017. Meanwhile, although inflation has picked up in recent months, thanks in large part to the rebound in oil, the bounce in energy prices may not be sustained if U.S. production kicks in again. Also, the dollar is likely to remain firm amid diverging central bank actions, which could cap the upside. The composition of the 2017 voting Committee may limit the number size of rate hikes as well. Evans, Kashkari, Harker, and Kaplan who are coming on board, are less hawkish than the current group including Bullard, George, Mester, and Rosenberg.

US VIX equity volatility finally broke below year lows of 11.02 to mark a trend low of 10.93 earlier compared to the 11.49-10.93 session range before rebounding to 11.27. Investors are starting to turn blue from holding their breath while awaiting the break of 20k in the Dow, which may itself be stymieing the advance as the markets get a case of acrophobia into year-end after the dramatic late-2016 rally. VIX focus is now on 8.20 life lows (July 4, 1994) for those who believe that 2017 will be smooth sailing and risk free.

Main Macro Events Today

U.S. GDP – The third release on Q3 GDP is out today and expectations are for the headline to be revised up to 3.3% for the quarter. Expectations for construction spending to be revised up by $6 bln, wholesale inventories by $3 bln and consumption by $2 bln while net exports undergo a slight, $1 bln, downward revision.

US Durable Goods – November durable goods data is out today and should reveal a -4.2%) decline in orders with shipments down 0.5% and inventories up 0.1% for the month. This compares to respective October figures of 4.6% for orders, -0.1% for shipments and flat for inventories. Data in line with forecasts would leave the I/S ratio at 1.65 from 1.64 in both October and September.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work.

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

European Outlook: Stock markets which already headed mostly south yesterday continued to decline in Asia overnight, with as oil prices remain below USD 53 per barrel and concerns about China are weighing on sentiment in thinning holiday trade, and with markets in Tokyo closed. Hong Kong stocks are hit by capital outflows. Deutsche Bank agreed to pay USD 7.2 bln and Credit Suisse USD 5.3 bln in U.S. mortgage probes, while the Italian government is ahead with its pan to provide USD 20 bln for troubled banks, with Monte Paschi planning to ask the government for a “precautionary” capital increase. U.S. stock futures are mostly slightly higher, as is the FTSE 100 future, but with DAX and FTSE 100 still at lofty heights, investors seem cautious to push out indices further ahead of the holidays. The calendar in Europe includes final Q3 GDP readings from France and the U.K. and the Swiss KoF leading indicator.

German Jan GfK consumer confidence: Rose to 9.9 from 9.8 in the previous month, the third consecutive rise and while the reading remains below the levels seen at the peak last year, the renewed improvement supports hopes for robust consumption trends going into 2017. However, the breakdown, which is only available until December, showed a rise in business as well as income expectations, but despite this the willingness to spend actually fell back to a reading of 48.0 from 51.2 in the previous month. At the same time the willingness to save also dropped further into negative territory though and price expectations fell also further into negative territory.

Yesterday’s U.S. reports: Revealed a significant upside Q3 GDP surprise with a headline boost to 3.5% from 3.2%, and firmness in “real” consumption in the November personal income report that lifted Q4 GDP growth estimate to 1.5% from 1.3%. Yet, we also saw weak equipment and inventory data in the durable goods report that restrained growth outlook, beyond the expected big 4.6% November headline orders drop attributable to a 13.2% transportation plunge. A 21k initial claims surge to 275k in the BLS survey week was disappointing, though the spike is likely due to holiday volatility, and the trend in claims remains encouraging. Finally, we saw a flat leading indicators figure for November that modestly beat estimates, while the Bloomberg consumer comfort index rose yet again, to a 20-month high of 46.7.

Eurozone 2017 – Political Risks Take Centre Stage: The Eurozone recovery is continuing at a moderate pace, inflation is picking up from very low levels, unemployment levels are coming down. The ECB’s very accommodative policy stance has not only helped Eurozone spreads to come in, but also continues to underpin lending and robust consumption and there are tentative signs that even investment is picking up again. But as Draghi confirmed the central bank’s policy of ongoing monetary accommodation through to the end of next year, it is the political arena that will take centre stage for 2017.

“ECB sources” say it will wait until after German elections in September before its next policy move, according to Reuters headlines. Hardly ground breaking news, considering that the ECB effectively clarified its policy stance through to end 2017 at the last meeting and the German election data is not yet known, but has to take place before October 22. It says that “no option is off the table” if the economy worsens, which is of course just another way to repeat Draghi’s message from the press conference that QE purchases can be stepped up if necessary. However, the report says the ECB aims to buy as few bonds as possible below the depo rate from January, which is sort of contradictory, but the thinned markets can make of it what they will.

Main Macro Events Today

Canada GDP – GDP to expand 0.1% m/m in October after the 0.3% gain in September. Total retail sales volumes grew 0.6% in October. A 0.9% m/m bounce in wholesale shipment volumes contrasted with the 1.7% plunge in manufacturing. But housing starts fell 12.1% to a 192.3k pace in October, consistent with a negative contribution from construction production. The outlook for mining, oil and gas production is mixed. Energy export values grew 5.5%, but prices did climb in October, suggesting that volumes may be disappointing. The manufacturing report revealed a 1.7% pull-back in petro and coal production. The 0.1% gain that we expect in October GDP combined with the 0.1% growth rates in November and December equate to a 1.9% growth rate in Q4 (q/q, saar). That would overshoot the BoC’s 1.5% estimate after the 3.5% Q3 GDP gain eclipsed the Bank’s 3.2% estimate. Growth is running slightly better than expected in the second half of 2016, consistent with a modestly more upbeat outlook in the January MPR that maintains no-change-for-an-expended-period as the baseline for BoC policy.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

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Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

European Outlook: US stocks had a quiet day with the Dow (USA30) closing short of 20,000 again at 19,945, Gold and Oil both traded higher (USD 1,144 – above its 10 DMA for the first time since November 10 and USD 53.84 – up some 1.6% on the day) respectively. The UK and Canada were closed yesterday for Boxing day. In Asia markets also saw low volumes. Japan Industrial production missed estimates rising 1.5% when expectations were for 1.7% during November. However, this was the best result for 5 months and there were also signs of life in the Retails Sales figures. Japan retail sales (November): -0.3% m/m (expected -0.5%, and for the y/y, up 1.7% expected +0.8% y/y, prior -0.2%. This is the first gain since February for retail sales.

FX Update: USD fell back again overnight. Canada, Australia, New Zealand and Hong Kong are all back from the extended Christmas holiday, but trading volumes are likely to remain thin for the rest of the week. AUD and NZD have been the main outperformers overnight. The EUR also continued to perk up against most currencies after Weidmann and Knot mulled tapering options yesterday, and EURUSD is currently at 1.0474, which but still has a way to go before revising last week’s peak at 1.0499. The Yen continues slide, after halting a four day advance yesterday, but USDJPY continued to ply a narrow range in the mid 117s, consolidating after logging a trend high at 118.66 last week. AUDUSD is above 0.72 now. Oil prices are higher and stock markets in Asia fluctuated in a very narrow range, with many centres closed.

Yesterday’s U.S. reports: Revealed another monthly consumer confidence surge that has taken the index back to levels last seen before the September 2001 terrorist attack when we saw a largely sustained downswing, alongside big December gains in the Richmond Fed and Dallas Fed indexes to 8.0 and 15.5, respectively, with broad-based gains beyond notable weakness in the employment indexes. It was the present situations index that exhibited the bulk of the post-911 hit to consumer confidence but it is expectations that have led the post-election bounce, alongside a gradual climb for the present situations index through this business cycle back toward the restrained highs of the prior cycle in 2007. Consumers and businesses are getting increasingly giddy about prospects for 2017, though production, inventory and sales data are thus far proving slow to respond.

The Rest of the Week Ahead: Various cross-currents may prevail in the last abbreviated trading week of 2016, though fundamentals should be the least dominant factor, and year-end portfolio adjustments the most relevant. Stocks remain on a sugar high in wake of the Trump election, but could take a breather, while bonds will wrestle with both index extensions and supply. While Trump’s Twitter feed over the interregnum before the inauguration may cause some isolated volatility, stocks look to finish 2016 inside some of the tightest ranges in over a year.

Main Macro Events Today

US Pending Home Sales – November Pending Homes Sales likely to increase 0.5% from 0.1% in October – the Year on Year figure is expected to continue to show US housing remains in strong demand. The impact of rising interest rates will play out next year but for now expect at least a 1.8% year on year figure.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work.

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

European Outlook: Asian stock markets were mostly down, led by a slump in Japan, as the Yen rose across the board. The weakness in Asia followed a decline on Wall Street yesterday set off by disappointing U.S. data that sent the USD into retreat. Oil prices also dropped and the front end WTI future is trading below USD 53 per barrel again despite approaching production cuts. The ASX still managed to post slight gains and some Chinese indices clawed back some of their recent losses while trading volumes perked up a bit. U.S. and U.K. stock futures are still down, however, setting the European market up for further weakness, although the DAX is still poised to end the year with a solid gain, as the ECB continues to lend a helping hand. With the ECB still on an asset buying spree, Eurozone yields remain under pressure and especially the short end continues to drop to new lows after Draghi removed the deposit rate floor for bond purchases. UK Nationwide house price index Dec mm +0.8% vs +0.2% expectations and year on year increase up to 4.5% from 3.8% expected.

FX Update: Overnight the Yen rose strongly – USDJPY fell from yesterday’s high at 117.80 to currently trade at 116.23, GBYJPY collapsed to under 143.00 and EURJPY is trading at 121.65 down from yesterday’s high of 123.26. The USD has also retreated against the EUR (back to 1.0450 from yesterday’s multi week lows at 1.0370) and GBP (1.2250).

Yesterday’s U.S. reports: US pending home sales fell 2.5% to 107.3 in November after rising 0.1% to 110.0 in October. Sales have been on a choppy, saw-toothed course for more than a year. Regionally, sales declined in the West (-6.7%), the Midwest (-2.5%) and the South (-1.2%), but rose slightly in the Northeast (0.6%). On an annual basis, however, sales accelerated to a 1.4% y/y clip versus 0.2% y/y previously.

Germany: Italy must stick to new rules in bank aid. Like Bundesbank president Weidmann earlier in the week, the German Finance Ministry today stressed that a precautionary recapitalisation of banks, as planned by Italy, can only take place in exceptional circumstance and within the framework of the Eurozone’s strict rules. The latter also includes investor bail-ins and the ministry stressed again that the bank must still be solvent and that public funds must not be used to cover foreseeable losses. The ECB reportedly already said that in the case of Monte Paschi the bank remains solvent, but reports from earlier in the week also suggest that the ECB is pushing for a higher investor bail-in as the government had planned. Italy’s banking sector, which is struggling to cope with the high level of non-performing loans, will clearly be the acid test for the Eurozone’s new regulatory framework for future bank bailouts.

Main Macro Events Today

US Initial Claims – Claims data for the week of December 24 is out today and should reveal a 275k (median 265k) headline, steady from last week and up from 254k the week before that. Claims have been striking a firm path since summer and are poised to average 259k in December from 252k in November and 258k in October.

EIA Crude Inventories – Expectations are for a drawdown of up to 1.5 million barrels, following a build of 2.256 million last week. Overnight the private inventory survey has shown the biggest build in 6 weeks. Conflicting data is not that uncommon between the two agencies. The official EIA data is published at 16:00 GMT.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work.

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

European Outlook: The Bund contract has broken the downtrend that had been in place since the end of September and is ending the year on a new uptrend after Draghi managed to inject new life with his QE extension. At the same time 2-year yields are testing new lows as the ECB drops the deposit rate floor for asset purchases. Gilt yields are also heading south again, although the 10-year yield recovered a lot of ground since the BoE removed its easing bias in November. Stock markets are set to end the year with solid gains on both sides of the channel. Today will be an early close for many centres. The calendar is relatively quiet, although Spanish HICP inflation is likely to attract some attention as this is the first of the big Eurozone countries to release preliminary December numbers and expectations are for a sharp acceleration in the headline rate, which will set the stage for the release of Eurozone numbers next week.

Overnight Update: WTI crude rallied to $54.19 from $54.05 following the EIA inventory data which showed a 600k bbl rise in crude stocks. The street had been expecting a 1.5 mln bbl decrease, though API data released on Wednesday revealed a 4.2 mln bbl increase in U.S. stocks. Gold rallied to and continues its good week on thin trading, overnight it reached $1163. The major mover was EUR bids at the close when EURUSD rallied to over 1.0650 for a three week high on very low liquidity and profit taking. .

Yesterday’s U.S. reports: revealed big but divergent surprises in the November advance indicators report that left a likely new 20-month high for the goods and services trade deficit in November of $45.8 bln, alongside surprisingly big November wholesale and retail inventory gains that translate to a big 0.7% November business inventory increase. The initial claims figures revealed a 10K drop to 265k in the fourth week of December that trimmed the 21k surge to 275k in the BLS survey week, which we still see as consistent with a tight claims trend despite holiday volatility that likely prompted the mid-month pop. Q4 GDP estimates remain at 1.5%, and expectations are for a 185k December nonfarm payroll rise.

Germany 2017- Election Jitters and Brexit Risks: The German economic recovery continues, largely driven by domestic demand and consumption. Inflation is set to continue to top the Eurozone average and the challenges for the next years will include trying to cope with a monetary policy that is too expansionary for the Eurozone’s largest economy. At the same time like for the rest of the Eurozone political risks, including the start of official Brexit talks and of course the general election in autumn will take centre stage next year amid the refugee crisis and rising support for the populist AfD.

President Obama: sanctioned Russia over email hacks by expelling 35 Russian intelligence operatives and closing two compounds. This followed and FBI/DHS report that revealed evidence of some of the electronic infrastructure and outlined the methods used to steal information. The Russians responded by stating the Obama admiration was trying to “completely ruin Russian-American relations.” This will put the new Trump administration on awkward footing and will be yet one more geopolitical risk that could destabilize the markets.

Main Macro Events Today

Spanish HICP – Last month it came in at 0.7% and as the first of the large euro area economies to report expectations are for a rise to 0.9%.

Chicago PMI- Here expectations are for a dip to 56.5 from the surge of 7 points in November. The October 50.6 was the weakest since May.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

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Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

United States: The U.S. data slate is heavy and the reports should be consistent with modest Q4 growth as the overall economy has yet to be impacted by Trump. Kicking off the year will be the December ISM manufacturing index (Tuesday). Also on tap (Tuesday) is the final December Markit PMI reading and November construction spending. Construction spending is expected to rise 0.6% after November’s 0.5% gain. Vehicle sales for December (Wednesday) are expected to inch up slightly with autos at a 5.2 mln pace. The ADP private payrolls survey (Thursday) is expected at a 175k pace, down from 216k in November. The ISM non-manufacturing index (Thursday) is projected sliding to 56.5 from 57.2 in November. The final Markit services reading is also due (Thursday). The December nonfarm payroll report (Friday) will highlight and complete the data for the first week of the new year. Expectations are for a 185k increase, after November’s 178k rise, with the unemployment rate edging up to 4.7% from 4.6%. The workweek is projected steady at 34.4 hours. Average hourly earnings are expected to rebound to 0.2% after dipping 0.1% in November. The FOMC minutes to the December 13, 14 policy meeting are on tap (Wednesday). Though the report would usually be highly anticipated by the markets, its importance has been diminished by the dot-plot showing estimates for three quarter point hikes in 2017, and by the fact that the usually dovish Chair Yellen seemed fully supportive of the more hawkish stance.

Canada: December employment report, trade deficit both highlight the week on Friday. Other highlights include the industrial product price index (Thursday). The Ivey PMI is also due (Friday), while the RBC’s manufacturing index for December (Tuesday) is the first report out of the gate for the new year. There is nothing from the Bank of Canada this week.

Europe: Final PMI readings are not expected to bring any real surprises and are expected to confirm manufacturing confidence for the Eurozone (Monday) remains healthy with the index at 54.9. ESI economic sentiment indicator (Friday) is expected to rise to 106.9 versus 106.5 in November. Also due are German manufacturing orders (Friday) and German jobless rate (Tuesday)

UK: 2017 will be a challenging year for the UK, both economically and politically. Creeping price pressures, caused by the weaker pound, which most economists expect will erode real household income, and Brexit-related uncertainty, which has already been suppressing business investment, are expected to manifest in slowing growth momentum. The U.K. calendar this week features the December PMI surveys and the BoE lending data for November.

China: The Caixin/Markit manufacturing PMI (Tuesday) is forecast at 50.7 from 50.9 December services PMI (Thursday) is seen improving to 53.5 from 53.1

Japan: Will be shut through to Tuesday for a bank holiday. The December Nikkei/Markit manufacturing PMI (Wednesday) is expected to dip to 51.8 from the previous 51.9 reading. December auto sales and the Markit services PMI are also due (Thursday).

Australia: The November deficit (Friday) is expected to narrow to -A$0.3 bln from -A$1.5 bln in October. There is nothing from the Reserve Bank of Australia.

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Please note that times displayed based on local time zone and are from time of writing this report.

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Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

European Outlook: Asian stock markets outside of Japan moved higher after a stronger than expected China Caixin manufacturing PMI. Eurozone stock markets already started the year with modest gains yesterday in very quiet trade, as most of the world remained closed for New Year celebrations. Japanese markets remained closed today, but elsewhere markets are back and it seems stocks are beginning the year in a good mood and optimistic on the growth outlook. Yesterday’s final Eurozone manufacturing PMI readings were also positive and today’s Swiss and U.K. numbers are also expected to confirm that output continues to expand at a solid pace. This should leave the German jobless rate at record lows, while French and German inflation data is set to accelerate sharply on base effects and with risks to forecasts on the upside after the very high Spanish number from last Friday. After the ECB continued ongoing QE purchases for the whole of this year, this doesn’t change the immediate policy outlook, but could temporarily dent the uptrend in Bund futures, that was sparked by Draghi’s affirmation of more asset purchases. The short end meanwhile will remain supported by the abolition of the deposit rate limit.

Overnight Update: China – Caixin Manufacturing PMI for December: 51.9 (expected 50.9, prior 50.9). The figure is close to a 4 year high for the Caixin/Markit Manufacturing Purchasing Managers’ index (PMI). The figure has been above 50 for six consecutive months and Output, at 53.7, rose at the fastest pace since January 2011. There was evidence of strong domestic demand although export orders remained “sluggish”. AUDUSD rose to session highs of 0.7230 on the positive news.

Eurozone manufacturing PMI confirmed at 51.9, as expected. The renewed uptick from 53.7 in November means the year ended on a high note and the numbers confirm that the recovery continues and for once on a relatively broad base. with Italy actually surprising on the upside this morning, which shows that the referendum result did little to dent optimism.

ECB Coeure:. The Executive Board member said in an interview with Germany’s Boersenzeitung that personally he doesn’t “exclude upside risks to inflation in 2017 if the reflationary impact of the new U.S. policies dominates“. Coere said “there are signs of an acceleration in headline inflation, above all because of the increase in oil and commodity prices”, adding that the ECB is “still waiting for signs that core inflation is on the rise and will clearly exceed 1%”. He admitted that the ECB’s assessment of the balance of risks, including for inflation, is shifting”, while stressing that the planned cut in monthly purchase volumes this year is “an adjustment not an exit”, and that a phasing out of purchases hasn’t even been discussed yet. Coeure said that a discussion will be needed about normalisation of monetary policy but it needs to be initiated carefully”. And indeed, after the ECB confirmed that asset purchases will remain in place until the end of the year this is not a discussion that will be needed any time soon.

Main Macro Events Today

German HICP – German HICP is seen rising to 1.1% y/y from 0.7% y/y. The better than expected Spanish number last Friday suggests a risk on the upside also for the overall Eurozone HICP rate (due Wednesday), which is expected to rise to 1.0% y/y from 0.6%. This is still far below the ECB’s definition of price stability, but the data will confirms that there is no real risk of a deflationary spiral, although after the ECB already confirmed its policy parameters for 2017 that won’t change the immediate policy outlook. It will add further ammunition though to the growing number of central bankers warning that real tapering can’t be delayed for too long, without undermining financial stability throughout the Eurozone.

US ISM Manufacturing PMI – December ISM is out today and should post a headline increase to 53.5 from 53.2 in November and 51.9 in October. Producer sentiment is continuing to benefit from diminished inventory headwinds and the rebound in oil prices. This should allow sentiment to end the year on a firm footing with the ISM-adjusted average of all measures holding at 53, steady from November and up from 51 in October.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work.

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

European Outlook: Asian stock markets are mostly higher, led by Japan, where the Nikkei closed with a 2.5% gain after an upward revision to the manufacturing PMI reading and underpinned by catch up trades, after yesterday’s holiday. The Hang Seng underperformed and showed a -0.27% loss in late trade, with energy stocks under pressure after the front end WTI future fell back below USD 53 per barrel. See details below. U.S. and U.K. stock futures, however, are moving higher, after broad gains on most markets yesterday and as a strong round of world PMI releases underpins growth optimism and risk appetite. At the same time inflation may be moving higher which is pushing up yields, although even if Eurozone HICP inflation is expected to jump higher and clear the 1.0% mark today, we don’t see the ECB reversing its decision to extend QE purchases through to the end of the year. Today’s European calendar also has Spanish inflation data, the final reading of the Eurozone Services PMI and from the U.K. BoE money supply growth and lending data.

US Data Yesterday: The U.S. ISM rise to a 2-year high of 54.7 from the prior high of 53.2 that was also seen last June left the ISM further above the 7-month low of 49.4 in August, and last December’s 48.0 expansion-low. The mix of available sentiment surveys should allow the ISM-adjusted average to sustain the November surge to a 16-month high of 53 from 51 in October and 50 in August and September. We saw a 49 expansion-low in January and February, and previously in October of 2012. We’re seeing a factory sector rebound that is lifting most producer sentiment and consumer confidence measures in the face of rising oil prices, a reversal in the inventory headwind, and hopes for deregulation and fiscal stimulus in 2017. The economy still faces lingering headwinds from a sluggish world economy, a strong dollar, and still-high oil inventories. U.S. construction spending popped 0.9% higher in November after a 0.6% October gain (revised up from 0.5%), though September was bumped lower to -0.2% from unchanged. The headline reading is better than expected. Spending is up 4.1% y/y. Strength was broad-based.

European Data Yesterday: German HICP jumped to 1.7% y/y, the highest rate since 2013, and starting to eye the 2% limit for price stability. That the headline rate would jump higher at the end of the year on base effects was widely expected, but the number did still come in far above the median forecast and the preliminary breakdown confirmed that most of it was due to energy price increases, which turned to 2.5% y/y in December, from -2.7% y/y in November. German jobless numbers dropped -17k in December, much more than anticipated and with the November decline also revised to -6k from -5k, which confirms that the improvement on the labour market continued at the end of 2016. The jobless rate remained at a record low of 6.0%, with much of the remaining gap due to structural issues and a mismatch of skills on the demand and supply side. The December UK manufacturing PMI smashed forecasts in rising to 56.1 from 53.6 in November, which was revised up from 53.4. The median forecast had been for a 53.4 outcome, while the 56.1 reading is the best since June 2014, indicating brisk expansion in the sector.

US Stocks and Oil swing wildly: Another swing and a miss on Dow 20k has sent stocks scrambling lower, accompanied by a reversal in the dollar, which has reversed lower as well. WTI crude has also doubled back in the melee, falling 2% $52.60 after climbing over 2.5% to clear $55.0 after its probe over $55 earlier (swing of nearly 5%) amid concerns about Libya upping production. Ford announced plans to cancel a $1.6 bln factory in Mexico, perhaps as collateral damage from the Trump tweet storm with U.S. execs, though Ford is up 2.5% (-5.5% 1-year return). GM was criticized by Trump for manufacturing its Cruze model in Mexico, which the company downplayed. The Dow stalled out at 19,938.5, eased below 19,800 before rallying into the close to end the day at 19,881.

Main Macro Events Today

Eurozone HICP – The much higher than expected German and Spanish inflation numbers forecasts for the overall Eurozone reading have been increased significantly to 1.3%, from 0.6% y/y in the previous month. Yields jumped higher on the report yesterday, but while the numbers add to the argument of the critics of Draghi’s expansionary policy, it is unlikely to see the ECB changing its mind on the QE expansion, as the uptick in inflation was already factored into central bank forecasts. It will however bring the question of when the ECB will start “real tapering” that is start a program of cutting back purchases with the intention of phasing them out, back to the agenda.

FOMC Minutes – Though the report would usually be highly anticipated by the markets, its importance has been diminished by the dot-plot showing estimates for three quarter point hikes in 2017, and by the fact that the usually dovish Chair Yellen seemed fully supportive of the more hawkish stance. There’s little the minutes can show that we don’t already think we know. Surprises are unlikely but still potentially high influential.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work.

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.